← Business Models: Industry Specific (Industrials & Materials) (all topics)
On-site / tonnage contracts
What it is
An industrial gas supplier builds an air separation unit inside or adjacent to a customer's plant - typically a steel mill, refinery or fertiliser unit - and supplies oxygen, nitrogen or argon by pipeline under a long-term contract of 15-20 years
The supplier owns the plant; the customer commits the volume
Impact on industries
- Annuity economics with exceptional visibility - contracts run for decades with inflation and power-cost pass-through built in
- Physical proximity makes the relationship effectively permanent, since a competitor would have to build a new plant to displace the incumbent
- Counterparty risk concentrates over a very long horizon - a customer's plant closure strands an asset with no alternative use
- Power is the dominant operating cost and is passed through, so the supplier's competitiveness depends on the customer's tariff rather than its own efficiency